On the first trading day of February, £1,000 bought roughly 900 shares in Lloyds (LSE: LLOY). Today however, that same £1,000 buys 1,013 shares (ignoring trading commissions) as the bank’s share price has pulled back quite significantly over the last month or so.
Is this an investment opportunity worth considering? Let’s discuss.
A great performance in 2025
Lloyds’ most recent results (for 2025) were impressive. For the year, the bank generated:
- Profit before tax of £6.7bn, up 12% year on year.
- Underlying profit of £6.8bn, up 7%.
- Earnings per share of 7p versus 6.3p a year earlier.
On the back of this strong performance, the bank hiked its dividend by 15%. It also announced a £1.75bn share buyback.
Overall, there was a lot to like. Accordingly, the share price moved higher after the report.
New risks have emerged
However, since these results were posted in late January, a few things have changed.
For a start, the Iran conflict has created some economic uncertainty. With oil prices up sharply, there’s potential for an economic slowdown (an increase in oil prices essentially acts like an additional tax on businesses and households).
If we were to see a slowdown, banks like Lloyds would probably be impacted negatively. That’s because loan growth would most likely stall.
Another issue that has emerged is the potential for an AI-related white-collar job wipeout. Recently, a number of companies have laid off staff due to AI automation and this trend looks like it will continue (and possibly accelerate).
This could have major implications for Lloyds’ mortgage book. If unemployment was to hit 10%, for example, mortgage defaults would almost certainly spike.
One other thing to think about is the fact that many investors piled into Lloyds shares when they were trading above £1 earlier in the year. These people are now sitting on a loss.
They may be tempted to sell when/if they break even. This could weigh down the share price and put pressure on the upward trend.
An opportunity?
Now, there are still reasons to be bullish on Lloyds, of course.
Recently, the bank said that it plans to sell customer data (anonymously). Its goal is to become the largest UK FinTech company.
It also said that it plans to cut its technology costs by 35%. Note that AI could help with cost reduction – it may be able to automate a lot of the bank’s operations and lower its staff costs.
As for the valuation, if we assume that earnings won’t be compromised by any of the risks mentioned above and take the 9.93p consensus earnings per share forecast for 2026, the shares trade on a price-to-earnings (P/E) ratio of less than 10. So, they don’t look expensive.
Turning to the dividend, analysts expect a 4.24p payout for 2026. That equates to a yield of about 4.5%.
Weighing this all up, the shares could be worth a look right now. However, in my view, there are safer stocks to consider buying today.
